CSR Regulation, Ethical Obligation, and Legitimacy: A Study of Indian and Other Asia Pacific Banks

Abstract

India’s new Companies law (2013) introduced a unique provision mandating Corporate Social Responsibility (CSR) spending and disclosure of the CSR performance by Indian companies. This paper evaluates the before and after effects of CSR spending and disclosures by four major Indian banks from 2010 to 2018, compared with banks from Japan, Australia, and China, where CSR is largely voluntary. Using self-reported CSR disclosures, this study aims to understand whether the new law has affected the quality of the disclosures made by major banks in India and compares them with quality of the CSR disclosures by other Asia-Pacific Banks. This research finds that there is marginal change in CSR spending by Indian banks and minimal improvement in the reporting quality following change in legislation in 2013. Indian Banks tend to use consistently vague and generic language to describe their CSR performance. Therefore, while quantity (length of the CSR disclosures) has improved, the quality (the level of detail) of CSR disclosures has not improved substantially. We find that the quality of the CSR disclosures made by other Asian Pacific banks remains better than those made by Indian banks. Further, due to inadequate drafting of the law, and poor institutional context, Indian banks are resorting to high levels of auto-interpretation and creative compliance to suit mainly self-interests. In conclusion, the law in its current form is failing to promote ethically responsible behaviour and not generating an ethical obligation to obey the law in spirit. These findings are of value to policy makers—to reform the law, and to design appropriate enforcement mechanisms.